Kuljetusneliö Oy (K) negotiated with A Ahlström Osakeyhtiö (Ahlström) in the summer of 1987 to provide transport from Varkaus to Kemi Osakeyhtiö in Kemi. K submitted an offer to Ahlström on 23 June 1987. On 30 July 1987, Ahlström confirmed that it was ordering transport from K on the basis of this offer. According to the resulting transport contract, the boiler was to be transported by ship and truck to Kemi. K assumed responsibility for, among other things, the loading, stowing and unloading of the boiler at the port of destination. According to the planned schedule, the boiler was to be in Kemi on 1 November 1987. In relation to Ahlström, K was a carrier within the meaning of the Maritime Act. In order to perform the actual transport task, K entered into an agreement with Suomen Merikuljetustekniikka Oy (M) to use a vessel named the M/S Ni-Nu owned by it to fulfil the transport order. Ahlström entered into a cargo insurance contract with Teollisuusvakuutus (Industrial Insurance).

The goods were loaded in Varkaus and the ship left there on 23 October 1987. From the beginning, difficulties arose during the voyage in the Gulf of Finland. Considerable amounts of water apparently penetrated through the deck. On the way to the Gulf of Bothnia, the vessel quickly filled with water in the Kvarken off the coast of Sweden on 31 October 1987, and parts of the boiler fell off the deck into the sea. The cargo was located, salvaged, inspected, and found to be largely unrepairable. As a result, Industrial Insurance paid Ahlström a total of FIM 14,558,851.88 under the cargo insurance policy. Industrial Insurance then sued M as the actual carrier for the damage to the cargo.

The Court of Appeal held that the valve of the Ni-Nu's drainage pump equipment was full of wood chips. Part of the reason for the blockage of the valve was that some of the sieves were defective. The cargo had been loaded on deck and some of the decks had been unscaled. The deck hatches could not be closed and made watertight. The master of the vessel had been changed during the loading phase and transport began fairly immediately thereafter. The new master had not had enough time to get acquainted with the cargo and the special features of the ship. On these grounds, the vessel had not been seaworthy at the start of the voyage, and M, as the carrier, had been aware of this. However, the information, instructions, and assurances given by Ahlström had contributed to the inadequate fastening of the cargo and had thus contributed to the damage. Therefore, the Court of Appeal has considered it reasonable to reconcile the carrier's cargo liability in the manner provided for in s 118(4) of the Maritime Act.

Under ss 43 and 76 of the Maritime Act, the master of the ship and the shipper were required to take care of the securing of the cargo and the seaworthiness of the ship. Ensuring the seaworthiness of the ship on a voyage basis, which included ensuring that the cargo could not be displaced in relation to the ship’s voyage and the expected weather, was one of the main maritime responsibilities of the loading supervisor and the master. The carrier, a company specialising in the carriage of deck cargoes, should have been aware of the securing of the cargo, the quality of the goods, and their potential for swaying at sea. The exception mentioned in s 168(2) of the Maritime Act for deck cargo could not be applied when the ship was unseaworthy. On those grounds, the Court held that M was required to pay Industrial Insurance FIM 7,279,425.94. The compensation to be paid was limited as provided in s 120(2) of the Maritime Act. The decision was amended on further appeal to provide that M was required to pay Industrial Insurance FIM 14,558,851.88, but not more than 784,000 SDRs, calculated at the exchange rate on the date of payment.

Industrial Insurance appealed to the Supreme Court, arguing that M had lost its right to limit its liability under the provisions of the Maritime Act and was thus obliged to pay compensation without restrictions. M contended that the Court of Appeal judgment should be upheld, and that Industrial Insurance's action should be declared inadmissible or, in the alternative, dismissed, and that M be exempted from all liability.

Held: The judgment of the Court of Appeal is amended. The principal amount of the indemnity payable by M to Industrial Insurance is FIM 14,558,851.88, limited to either 784,000 SDRs, or 222,110 SDRs, on the date of payment, or the total amount of the claim and the salvage reward of FIM 3 004 408.

The report mentioned by the Court of Appeal shows that the ship's cargo hatches had already leaked before the voyage in question when the waves hit the deck at sea. Aware of this, and without taking steps to ensure that the hatches did not leak, the shipping company allowed the vessel to operate on the high seas using drainage pumps. In addition, the voyage in question had been undertaken without cleaning the hold, with the result that the wood chips and other debris contained in it had been washed into the bilge wells of the hold and caused the pumping equipment to malfunction due to the condition of the filters. On this basis, the Supreme Court finds that the ship was unseaworthy on departure from Varkaus, to the extent that M caused damage to the cargo due to its gross negligence. As a result, the shipping company has lost its right to invoke the deck cargo disclaimer under general principles of contract law.

On the grounds mentioned in the judgment of the Court of Appeal, the cargo liability of M as a carrier is limited to 784,000 SDRs on the basis of the weight of the cargo pursuant to s 120(2) of the Maritime Act.

As a shipowner, M also has the right to a total limitation of its liability, ie global limitation according to s 12 of the Maritime Act. However, according to s 14(1) of the Maritime Act, the right to limitation of liability does not apply to, among other things, the salvage reward of FIM 3,004,408 required by Industrial Insurance or, according to s 6, interest and compensation for legal costs. M has called for its global liability to be limited to the ship's tonnage of 830 tonnes. M's liability under s 16(1)(3) of the Maritime Act is limited to 222,110 SDRs.

Whether a limited liability under s 16(1)(3) or s 120(2) of the Maritime Act is more favourable to M depends on the current rate of the SDR, also taking into account that the abovementioned compensation of FIM 3,004,408 for salvage does not entitle limitation of liability under Ch 2 of the Maritime Act. On the date of payment or on the date on which it lodges a security for payment, M has the right to limit its liability primarily to 784,000 SDRs under s 120(2) of the Maritime Act and, secondarily, to global limitation of liability under ss 13 and 14, namely 222,110 SDRs. The right to limitation of liability does not apply to interest imposed by the Court of Appeal or compensation for legal costs.